Small and micro companies have always been cast in the role of underdog in terms of obtaining loans from banks， especially large state-owned ones. However， small and medium-sized enterprises and startups will soon have access to other sources of funding. In late July the China Banking Regulatory Commission （CBRC） declared the approval of three new banks wholly funded by private firms， echoing the pilot scheme for setting up private banks announced in March.
　　The three banks are located in the Qianhai Economic Zone in south China’s Guangdong Province， Wenzhou， east China’s Zhejiang Province， and Tianjin， a northern port city， respectively. They will start operating between the end of this year and next April.
　　“Private banks are better placed to establish ties with small and micro enterprises，” said Guo Tianyong， a professor of banking from the Central University of Finance and Economics. Given that the founders of the three private lenders are private companies， they will have a more accurate knowledge of the specific needs of small enterprises， Guo said.
　　Naturally， people can expect private banks to become major force in funding small and micro companies. Yet， the loan morass small and micro firms confront is unlikely to be trudged through in the immediate term， keeping in mind the limited number of approved banks.
　　“In the days to come， these private banks have to face up to a major challenge—how to innovate a new profit model and system of operations. In other words， they need to make clear their overall positioning and target groups，” said Guo.
　　 Shoring up small firms
　　The Qianhai-based Webank has garnered the most attention， because its largest sponsor is China’s Internet giant Tencent， sparking speculation concerning possible financial innovations spurred by Internet technologies such as big data. The other two major shareholders of Webank are Shenzhen Liye Group， a large private enterprise specialized in financial and industrial investment， and Baiyeyuan Investment Co.， a Shenzhen-based investment company. Webank will target both individual consumers and small and micro companies.
　　Guo Wanda， Deputy Director of Shenzhen-based China Development Institute， believed Webank will constructively serve the needs of both individual consumers and small firms. “Emerging financing channels such as private banks and Internet finance will reduce the financial pressures bearing down on small companies， and new innovative products and services will benefit the public practically，” he said. 　　The bank in Wenzhou， co-founded by Chint Group， a private company specialized in industrial electrical equipment production and clean energy， and Huafon Group， a private enterprise producing new chemical materials， is orientated toward local small and micro companies， individual businesses， residents and clients in rural areas.
　　Given the large quantities of small enterprises in Zhejiang， the public have put a lot of faith in the first private bank in the province， hoping that the shortage in loan supply may now be ameliorated.
　　“Without a doubt， the establishment of private banks will help make full use of private funds standing idle and lift cash-stricken small enterprises out of their present mire，” said Xu Zhiwu， vice President of Chint Group， suggesting that in Zhejiang， while people holding capital find it difficult to source investment opportunities， startups also feel frustrated in their attempts to get loans.
　　The bank in Tianjin will specialize in corporate banking services for small and micro firms， with Huabei Group， engaged in electrical cable production， property， finance and logistics， and Maigou （Tianjin） Group， which operates in commercial property， retail and finance， being its major shareholders.
　　“If financing costs are lowered and there are fewer formalities than there are with stateowned banks， my company would be willing to become the client of the first private bank in Tianjin，” Yuan Ruhai， President of Haishun Printing Group， a local private company， told Tianjin Daily.
　　 how to survive
　　Some experts warned that the public should not be overly optimistic toward the future of private banks. “Since state-owned commercial banks still hold the bulk of the deposits in the country， private banks will be squeezed by their state-owned counterparts’ advantage of low financing costs，” said Zhong Wei， Director of the Financial Research Center of Beijing Normal University.
　　Zhong suggested that private banks develop their own advantages in enhancing their service quality.
　　Yang Liping， an official from the CBRC， pointed out that the three banks have been established on the basis of the market demands of the regions in which they are located and the expertise and advantages enjoyed by their shareholders. “Different financial institutions are encouraged to formulate development strategies according to their individual characteristics， rather than attempting to be all things to all people，” said Yang. 　　Owing to the participation of Tencent in the preparations， it is widely believed that new ideas and approaches from Internet finance will be introduced into the banking sector.
　　Wang Ting Ting， a finance professor at the Central University of Finance and Economics， noted that Tencent’s edge lies in its ocean of existent clients. “As Tencent expands its business in financial services and products， its enormous pool of clients will prop up its physical bank，” said Wang.
　　The prospective private bank in Wenzhou has decided to follow the strategy of “taking root and serving businesses in Wenzhou，”in the hopes of seizing a foothold in the local banking industry.
　　“Since the shareholders of the bank in Wenzhou enjoy a deeper level of knowledge regarding local conditions， it will take fewer resources for them to carry out credit investigations and serve local companies，” said Xu of Chint Group， who argued if the bank can give a full play to its advantages in terms of geographic location， decision-making mechanisms and information costs， and continue to provide small and micro companies with innovative financial products， a core competitiveness will gradually take shape.
　　Yang Zaiping， vice President of China Banking Association， held that what private banks need is a transparent， stable and equal environment with both penalties and supporting policies.
　　“The traditional financial sector is policyoriented. Private banks are dependent on policy environment as much as their state-owned counterparts，” said Zhong， noting that risk management is pivotal to the success of private banks.
　　 Ensuring safety
　　Without the support of government credibility and the deposit insurance system， worries have arisen over private banks’ ability to guarantee the safety of deposits.
　　The founders have agreed to run the banks entirely at their own risk. Given the absence of a deposit insurance system， if a private bank has to go through bankruptcy liquidation and its capital can’t pay off debts， the net asset of its actual controllers will be used to fully or partly return the money to depositors， Yang Liping explained.
　　Zhong expressed strong confidence in the risk management ability of the approved three banks owing to their good financial standing， though he warned of potential problems of a similar nature in the future. “As the thresholds for private banks become lower in the future， problems may inevitably rear their ugly heads.”
　　As Yang Liping suggested， the CBRC has set about drawing up supervisory regulations for private banks and designated special institutions and agencies to oversee related business activities， especially the potential connected transactions between these banks and their founders.
　　“The deposit insurance system is expected to be launched this year. Then worries over deposit safety will be alleviated，” said Guo Tianyong.